In re Freeman, Case No. 18-50250

607 B.R. 317

IN RE: Laronda FREEMAN, Debtor.

Case No. 18-50250

United States Bankruptcy Court, E.D. Michigan, Southern Division.

Signed November 4, 2019

William D. Johnson, Ryan Allen Paree, Brian D. Rodriguez, Acclaim Legal Services, P.L.L.C., Warren, Michigan, Attorneys for the Debtor.

Tammy L. Terry, Detroit, Michigan, Chapter 13 Trustee.

OPINION REGARDING FEE APPLICATION OF THE DEBTOR'S ATTORNEYS

Thomas J. Tucker, United States Bankruptcy Judge

I. Introduction

This case is before the Court on the fee application of the Debtor's attorneys, Acclaim Legal Services, PLLC, filed September 12, 2019 (Docket # 81, the "Application"). The Application seeks allowance of fees totaling $7,949.00 and reimbursement of expenses in the amount of $35.25.

The Application presents a question about the meaning of Bankruptcy Code § 330(a)(4)(B). That section authorizes the Court, "in a Chapter 13 case," to "allow reasonable compensation to the debtor's attorney for representing the interests of the debtor in connection with the bankruptcy case...."

This bankruptcy case began as a Chapter 7 case, but six months later the case was converted to Chapter 13. Seven months after that, the Court confirmed a Chapter 13 plan. The Debtor's attorneys, who have represented the Debtor for the entire duration of the case, now seek allowance of fees, on an hourly-rate basis, for their work on both the Chapter 7 and the Chapter 13 phases of this case. And they seek to have all such fees treated as an administrative expense under the Debtor's confirmed Chapter 13 plan, to be paid in full by the Chapter 13 Trustee.

The question presented is whether and to what extent § 330(a)(4)(B) permits the Court to allow fees for work done by the Debtor's attorneys while this case was in Chapter 7, before it was converted to Chapter 13.

II. Background

A. The Chapter 7 phase of this case

On July 24, 2018, the Debtor filed a voluntary Chapter 7 petition, commencing this case. On that day the Debtor also filed a compensation statement under Fed. R. Bankr. P. 2016(b), in which the Debtor and her attorneys disclosed that before the case was filed, the Debtor had paid attorney fees in the form of a "flat fee" of $895.00 to Debtor's attorneys, plus the $335.00 filing fee.¹ The flat fee was "[f]or legal services rendered in contemplation of and in connection with this case, exclusive of the filing fee paid," not including "[r]epresentation of the debtor[ ] in any dischargeability actions, judicial lien avoidances, relief from stay actions or any other adversary proceeding."²

On September 12, 2018, the United States Trustee filed a motion to dismiss this case (the "UST Motion"), based on 11 U.S.C. §§ 707(b)(2) and 707(b)(3), contending that this case was an "abuse" of the provisions of Chapter 7, within the meaning of 11 U.S.C. § 707(b)(1).³ On September 25, 2018, the Debtor filed a response, objecting to the UST Motion.⁴ Substantial litigation of the UST Motion followed, during which the Debtor vigorously contested the United States Trustee's effort to obtain a dismissal of this case or to force a conversion of this case to Chapter 13.⁵ In an effort to avoid dismissal or conversion, and keep this case in Chapter 7, the Debtor filed four sets of amended Schedules I and J,⁶ and the Debtor filed nine amended means test forms (Forms 122A-1, 122A-2),⁷ and a detailed brief.⁸ The United States Trustee filed an opening brief and two supplemental briefs.⁹

The Court held two lengthy hearings on the UST Motion, on October 10, 2018 and on December 12, 2018. During both hearings, the Debtor's attorney argued against the UST Motion. At the conclusion of oral argument during the December 12, 2018 hearing, the Court gave an oral opinion, conditionally granting the UST Motion. The Court entered an order the same day, which gave the Debtor 14 days to file a motion to convert this case to Chapter 13, and stated that if the Debtor did not file such a motion, the Court would dismiss the case.¹⁰

B. The conversion of this case to Chapter 13

On December 26, 2018, the Debtor filed a motion to convert this case to Chapter 13.¹¹ After no timely objections to that motion were filed, it was granted, and the case was converted to Chapter 13 on January 29, 2019.¹²

On February 12, 2019, the Debtor filed another compensation statement under Fed. R. Bankr. P. 2016(b), in which the Debtor and her attorneys disclosed that the Debtor had agreed to pay attorney fees in the form of a "flat fee" of $3,500.00 to Debtor's attorneys for the Chapter 13 portion of this case.¹³ But the compensation statement provided that the attorney fee could exceed the $3,500.00 flat fee, based on hourly rate billing, if the Debtor's attorney filed a fee application and the Court ordered a higher fee amount.¹⁴

The Debtor eventually was able to confirm a 60-month Chapter 13 plan, with the entry of a confirmation order (the "Order Confirming Plan") on August 28, 2019.¹⁵ The Order Confirming Plan provided that the Debtor's attorneys would file a fee application, and stated that fees allowed under that application "shall be paid by the [Chapter 13] Trustee as an administrative expense of this case."¹⁶ That is consistent with the confirmed plan itself, which provided that the allowed pre-confirmation fees of the Debtor's attorneys would be paid as an administrative expense claim, as part of Class Two administrative claims.¹⁷

C. The fee application filed by Debtor's attorneys

The Debtor's attorneys filed their fee application on September 12, 2019.¹⁸ No timely objections to the Application were filed, and the Debtor's attorneys filed a certificate of no response on October 8, 2019.¹⁹

As discussed in more detail in Part IV.B of this Opinion, the Application seeks allowance of fees, on an hourly-rate basis, for the substantial pre-conversion work done by Debtor's attorneys during the Chapter 7 phase of this case, as well as for their post-conversion work in the Chapter 13 phase of the case.

In an Order entered on October 9, 2019 (Docket # 83, the "October 9 Order"), the Court required Debtor's attorneys to file a supplement to the Application, to address the issue of whether and to what extent the Court can allow fees and expenses incurred while this case was in Chapter 7.

In the October 9 Order, the Court stated, in part:

It appears that the fees and expenses in the Application include fees and expenses incurred while this case was in Chapter 7, before it was converted to Chapter 13 (the time period of July 24, 2018 to January 29, 2019). The Court questions whether fees for work done in the initial, Chapter 7 phase of this case can be allowed, given the United States Supreme Court's decision in Lamie v. United States Trustee, 540 U.S. 526 [124 S.Ct. 1023, 157 L.Ed.2d 1024] (2004). Several cases have held that a debtor's counsel cannot be paid for fees incurred before a Chapter 7 case converted to Chapter 13. SeeIn re Carey , 2006 WL 288226 (Bankr. D.N.H., Feb. 1, 2006) ; In re McDonald , 2011 WL 12885454 (Bankr. S.D.Ga., March 8, 2011) ; In re Holbrook , 2008 WL 2437735 (Bankr. E.D.Tenn., June 13, 2008). But at least one court has reached the opposite conclusion. SeeIn re Genatossio , 538 B.R. 615 (Bank. [Bankr] D.Mass. 2015). The issue appears to turn, at least in part, on the meaning of 11 U.S.C. § 330(a)(4)(B) in this context.

The Court will give Debtor's counsel an opportunity to address this issue, before ruling on the Application.²⁰

On October 23, 2019, Debtor's attorneys timely filed a supplement to their Application, responding to the October 9 Order.²¹ The Court has reviewed that supplement, and the cases cited in it.

III. Jurisdiction

This Court has subject matter jurisdiction over this bankruptcy case and this matter under 28 U.S.C. §§ 1334(b), 157(a) and 157(b)(1), and Local Rule 83.50(a) (E.D. Mich.). This is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A), 157(b)(2)(B), and 157(b)(2)(O).

This matter also is "core" because it falls within the definition of a proceeding "arising under title 11" and of a proceeding "arising in" a case under title 11, within the meaning of 28 U.S.C. § 1334(b). Matters falling within either of these categories in § 1334(b) are deemed to be core proceedings. See Allard v. Coenen (In re Trans–Industries, Inc. ), 419 B.R. 21, 27 (Bankr. E.D. Mich. 2009) (citations omitted). This is a proceeding "arising under title 11" because it is "created or determined by a statutory provision of title 11," see id. , namely Bankruptcy Code § 330. And this is a proceeding "arising in" a case under title 11, because it is a proceeding that "by [its] very nature, could arise only in bankruptcy cases." See id. at 27.

IV. Discussion

The Court now concludes that it has authority, under 11 U.S.C. § 330(a)(4)(B), to allow some, but not all, of the fees and expenses requested in the Application.

A. The meaning of § 330(a)(4)(B) in the context of a case converted from Chapter 7 to Chapter 13

Initially, it is clear that the Court cannot allow any attorney fees or expenses for the Debtor's attorneys, based on 11 U.S.C. § 330(a)(1) ,²² for work done by Debtor's attorneys before this case converted from Chapter 7 to Chapter 13. And, for that matter, the same is true for work done after the case converted to Chapter 13. This is because the Debtor's attorneys were never "employed under section 327 or 1103" within the meaning of § 330(a)(1). As the United States Supreme Court held in Lamie v. United States Trustee, 540 U.S. 526, 124 S.Ct. 1023, 157 L.Ed.2d 1024 (2004),

§ 330(a)(1) does not authorize compensation awards to debtors' attorneys from estate funds, unless they are employed as authorized by § 327. If the attorney is to be paid from estate funds under § 330(a)(1) in a Chapter 7 case, he must be employed by the trustee and approved by the court.

540 U.S. at 538-39, 124 S.Ct. 1023.

Debtor's attorneys do not seek any fees based on § 330(a)(1). Rather, they argue that now that the case is in Chapter 13, the Court has authority to...